12.15.14 - Hedge Funds Seek Safety of Gold
Gold last traded at $1,207 an ounce. Silver at $16.56 an ounce.
After largely missing the downturn in stocks, hedge funds are re-orienting themselves to the safe haven provided by gold.
In fact, hedge funds are now the most bullish on gold since August. The net-long position in New York futures and options climbed for a fourth week, the longest stretch of increases since July.
The move to gold occurs in the wake of the plunge in global equities that has erased about $2 trillion from the value of stocks. In contrast, gold prices are heading for a second consecutive month of gains.
“We are seeing safety trade toward gold,” says Peter Sorrentino , a senior vice president who helps oversee $1.8 billion at Huntington Asset Advisors in Cincinnati. “Investors have begun to see that the equity market is priced for a scenario that may not come to pass. That’s led some to flee the market and use gold as a storehouse.”
The decline in stocks and the rise in gold is no coincidence. Unlike bonds and real estate, gold has historically moved independently of stocks. This makes gold an ideal diversifier for a portfolio weighted heavily in paper assets.
Last week's carnage in stocks has continued this week, with declines across the board in markets in Germany, France, the UK, Hong Kong, Tokyo and the Dow, S&P 500 and the NASDAQ. Ironically the decline is being blamed on something that used to be considered good news: a decline in the price of oil.
The problem perceived isn't that the price of oil is falling, but that it has fallen so far, so fast. Many observers see the drop as a sign of deflation and fear the contagion could spread to other economic sectors.
12.12.14 - No Coincidence: Gold Headed for Best Week in 6 Months as Stocks Suffer
Gold last traded at $1,224 an ounce. Silver at $17.09 an ounce.
Historically gold has moved independently of the US stock market and, often, it has had a negative correlation to stocks.
This is important because diversification is one of the most important and fundamental principles of investing. The only way to achieve true diversification is to include assets in your portfolio that are not closely and positively correlated with one another.
There was a time when it was believed that diversification meant merely investing in stocks and bonds at the same time. However, that strategy has proven inadequate, since stocks and bonds are often positively correlated with one another due to their similar reactions to changes in interest rates.
It is also not enough to just spread your money into real estate. After all, in the financial crisis of 2007-2009, both the real estate and stock markets fell hard for interrelated reasons.
Gold is the ultimate portfolio diversifier because it is truly independent. It does not react to macroeconomic, financial and geopolitical factors in the same way paper assets do. Unlike all man-made, paper investments, gold is an asset in its own right, not dependent on anyone's promise to repay.
Keep that in mind as you examine the market events of the past week.
Growing fears over the Chinese economy, the eurozone and oil prices have sent global stock markets tumbling this week. In fact, the FTSE 100 in Britain is now on course to record its worst week for more than two years.
But the British stock market is not alone. The Italian FTSE MIB, the CAC 40 in France and Germany’s DAX were all down sharply this week.
And here in the US, the stock market has also fallen hard. After starting the week at just under 18,000, the Dow is set to finish the week some 400 points lower. The S&P 500 and NASDAQ have both fallen sharply over the course of the week too.
Against this backdrop stands the contrast of gold.
Gold is on track for its biggest weekly rise since June, up nearly 3 percent for the week, following a 2.1 percent jump the previous week. Falling stock markets have prompted some investors to buy the metal as an alternative asset, while a drop in the value of the US dollar made gold even more attractive, since gold is priced in dollars.
12.11.14 - Congress Debates Spending Bill, Billionaire Investor Turns to Gold and Silver
Gold last traded at $1,225 an ounce. Silver at $17.11 an ounce.
Today the United States Congress is debating a $1.1 trillion spending bill which will result in another massive federal budget deficit and contribute to the ever-increasing $18 trillion federal debt.
The omnibus spending bill is being attacked from both sides. It seems there is something for everyone to hate in this 1600 page monstrosity, including changes to how banks may trade derivatives.
Though it doesn't seem particularly likely at this time, there is a remote possibility that stand-offs on certain key issues could potentially result in more talk of a government shutdown.
A New Gold Bull
One of the world’s richest men, billionaire Frank Giustra, is turning to gold over concerns about the world banking system and his forecast that the dollar will renew its decline. He specifically warns gold investors, however, not to deposit gold in banks. He reports some Swiss banks, once the epitome of security and privacy, have moved depositors' gold out of segregated vaults.
Giustra is also very concerned about banks' massive exposure to the derivatives markets, which of course leads us back to the omnibus spending bill in Congress. Should it pass, it will allow banks to once again trade derivatives in-house by entities covered by FDIC insurance. The obvious danger here is that the taxpayer-funded FDIC, which is woefully inadequate to cover member banks, could be on the hook should derivatives-driven losses put a bank in jeopardy.
12.10.14 - Gold Defies Stocks, Commodity Declines
Gold last traded at $1,229 an ounce. Silver at $17.19 an ounce
The price of gold is trading at a 7-week high while the prices of other commodities, particularly oil, are literally collapsing.
The explanation for this shift is understandable given the recognition that gold is not like any mere commodity. Gold is the ultimate form of real money and its age-old monetary role separates it from the commodity world. While oil, natural gas, gasoline, copper, nickel, iron ore, and other industrial commodities have been falling, gold has risen as investors around the world seek safe havens.
The fall in world stock markets has come upon us suddenly as a result of a broad array of factors from Greek politico-economic turmoil to a slowing Chinese economy.
Greece has been an economic and financial thorn in the side of the European Union for a few years now and, up until recently, it was hoped Greece would finally emerge from its persistent economic problems. That looks highly unlikely now as a political crisis in Athens could cause the current government to collapse, which would almost certainly result in an economic collapse.
Meanwhile, China is doing more and more to prevent an economic slowdown there, including accelerating its war on the US dollar in an attempt to boost the worldwide prestige of the yuan as a reserve asset and medium of exchange.
In other news, the co-founder of Home Depot, Ken Langone, has issued a warning about the US economy.
Langone says he sees extreme wariness among consumers.
"The consumer is more cautious now than I've ever seen them," the billionaire said in an interview on CNBC, because the growth in jobs and uptick in wages are not robust enough.
His forecast is far from optimistic: "We're going to have a very tepid economic recovery."
Sales of silver coins aren't tepid.
The US Mint has sold a record number of silver coins this year as demand for the physical metal helped futures in New York recover more than 20 percent since falling to a five-year low early this month.
Sales of American Eagle silver coins reached 43.051 million ounces in 2014, data on the mint’s website shows. That tops last year’s 42.7 million ounces, the previous all-time high.
12.9.14 - Gold Surges Amid Wall of Worry
Gold last traded at $1,232 an ounce. Silver at $17.13 an ounce.
The price of gold is surging this week as a result of a global rout in stocks and a retreat of the US dollar.
Gold hit its highest level since late October, as cautious comments from U.S. Federal Reserve policymakers prompted a pullback in the dollar and stock markets slid.
Dennis Lockhart, head of the Atlanta Federal Reserve, said late on Monday he was in no rush to drop the Fed's pledge to keep interest rates near zero for a "considerable time," while San Francisco Fed chief John Williams said the phrase was still appropriate.
That sparked a retreat in the dollar, which fell 0.8 percent; its biggest one-day drop since April.
Stocks in the US were also slammed by global economic concerns. U.S. stocks declined this morning, extending losses into a second session, as Wall Street echoed a global rout that came as China toughened collateral rules for short-term loans, increasing worries about its economy. China's Shanghai exchange fell more than 5% overnight.
European shares also fell hard, led by Greece, which appears to be re-entering economic crisis mode. Greece's stock market fell by the most for a single day since 1987, spooking the stock markets of other European Union nations. Greece's trouble was prompted by a burgeoning political crisis which could see elections called for much sooner than anticipated.
All of this is benefiting gold since a weaker dollar makes dollar-denominated gold cheaper, while investor aversion to risk due to stock market volatility and economic uncertainty increases gold's attraction as an alternative investment to diversify portfolios overweight in paper assets.
Finally, as if Europe didn't have enough to worry about, last week's report that ISIS terrorists may have a radiological "dirty bomb" appears to have legs.
An alleged weapons maker for ISIS now claims a “radioactive device” has been smuggled into an undisclosed location in Europe, according to an intelligence brief released Monday by the SITE Intelligence Group.
While it is difficult to assess the veracity of the ISIS claims, U.S. officials have expressed concern about ISIS potentially smuggling nuclear and radioactive material out of Iraq.
12.8.14 - Gold Picture Brightening Due to Central Bank Stimulus
Gold last traded at $1,203 an ounce. Silver at $16.38 an ounce.
Central bankers can't stand gold because it is the ultimate form of real money and thus stands in direct competition to fiat currencies.
Because of that, they often do all they can to suppress gold. In the past, they have tried to manipulate its price through various forms of chicanery.
Ironically, however, central bankers' activities usually end up undermining the value of their own fiat currencies and highlighting the value of gold.
Today seems to be no exception. Not terribly long ago many analysts were ready to write gold off but central bankers' actions as of late have many optimistic about the prospects for the yellow metal.
There are now signs that central banks will act to counter low inflation which will, in turn, boost gold.
European Central Bank President Mario Draghi said last week that policy makers “won’t tolerate” a prolonged period of low inflation, as officials consider increasing asset purchases. The Bank of China lowered interest rates to spur economic growth, while the Bank of Japan has expanded its unprecedented stimulus program.
Whether these measures will boost economic activity is debatable. That they will undermine paper currencies is a foregone conclusion.
Stock Bull Pulls in His Horns
With stocks at record highs and the Dow less than one percent from crossing 18,000 for the first time ever, James Paulsen, the chief investment strategist at Wells Capital Management, says he's going to "underweight" the U.S. for 2015.
Paulsen, who's ridden the rally higher over the years, now sees a flat or even a negative year for stocks in 2015.
According to Paulsen, "There's some really, really strong Wall Street consensus themes right now. And one of them is 'the U.S. is the place to be.' Another one is 'the dollar is only going to go up.' The third one [is] 'rates can stay lower for longer.' I kind of think that 2015 might resolve in disappointing every one of those themes. The whole foundation of this bull market we've been in since 2009 has been climbing a chronic wall of worry. That's been the primary catalyst for this run. That, to me, is over."
12.5.14 - The Whole Truth on the Employment Numbers
Gold last traded at $1,190 an ounce. Silver at $16.26 an ounce.
We've no doubt all heard the phrase "lies, damn lies and statistics."
No where does this phrase match better than when it comes to describing economic statistics produced for public consumption by agencies of the U.S. federal government.
Today is a case in point.
The Labor Department reported today that employers added 321,000 jobs in November — a much stronger number than expected. Hourly earnings rose by 0.4 percent in November, double what economists had been expecting.
But don't start celebrating just yet.
The labor force participation rate remained at a 36-year low of 62.8 percent in November, according to the Bureau of Labor Statistics.
The quality of jobs created also comes into question.
Retail Trade, Education and Health, and Leisure and Hospitality, as well as Administrative Assistants, cumulatively made up more than half of the jobs gains in the month. All of these categories are minimum wage - or just above - paying jobs.
Another economic statistic released today does not seem to back up the rosy employment figures.
US Factory Orders tumbled 0.7% in October (obviously falling short of expectations). This is the 3rd month in a row that factory orders fell; for the first time since June 2012.
In other news - that could conceivably have future implications for the financial markets and global economy - ISIS terrorists are claiming that they have manufactured a "dirty bomb" with radiological material confirmed as stolen from the University of Mosul in Iraq over the summer.
12.4.14 - China Overtakes the US
Gold last traded at $1,207 an ounce. Silver at $16.58 an ounce.
Anyone who doubted the US dollar's recent strength was largely a temporary mirage should have had their hearts and minds changed with the news that came in today.
For the first time since Ulysses S. Grant was president, the U.S. is not the leading economic power in the world.
The Chinese economy just overtook the United States economy to become the largest in the world.
According to the International Monetary Fund, China will this year produce $17.6 trillion in goods and services — compared with $17.4 trillion for the U.S.A.
As recently as 2000, we produced nearly three times as much as the Chinese.
China now accounts for 16.5% of the global economy when measured in real purchasing-power terms, compared with 16.3% for the U.S.
This follows the development last year of China surpassing the U.S. for the first time in terms of global trade.
This has ominous implications for the value of the U.S. dollar, especially since China has been very aggressive in promoting its currency as a replacement for the dollar as a medium of exchange and reserve asset.
It's also interesting to note that China's overtaking America comes as China's economy has actually been slowing. This suggests that the future could see China's growth accelerating ahead of America even further.
All of this comes as central banks around the world struggle to develop policies to boost economic growth. It seems no economy is thriving. The European Central Bank is embarking on an asset buying program even more ambitious than the US Federal Reserve's Quantitative Easing program. Even the OPEC nations and Russia are stymied by suddenly collapsing energy prices. This has led to a problem central bankers have never had to tackle.
If they are as successful at tackling this problem as they have been at tackling other problems, we should all prepare for rough waters ahead.
12.3.14 - Another Debt Milestone Surpassed
Gold last traded at $1,208 an ounce. Silver at $16.41 an ounce.
Very quietly last night the US National Debt surpassed $18 trillion for the first time.
Though it gets almost no coverage in the news media, our federal government continues to accumulate added debt at a rapid clip.
With the U.S. national debt - or government debt - now at over a staggering $18 trillion, it means each household in the U.S. now carries the burden of $124,000 in national debt alone - or $56,378 per individual. This does not include the massive private debt or household debt burden; people’s mortgages, personal loans, credit card debt, student loans, car loans and other household debt.
When Obama took office in 2009, the national debt had surged to $10.6 trillion up from $3 trillion at the beginning of Bush’s tenure in 2001.
The total U.S. debt has increased by 70% under Obama, from $10.625 trillion on January 21, 2009 to over $18.005 trillion today
In short, the federal government has borrowed, and spent, nearly $7.5 trillion more since President Obama took office than it has collected in taxes.
This development is coupled with some significant warnings about the stock market and the US economy today.
Jeremy Warner of the The Telegraph newspaper in the United Kingdom editorialized today that there are five reasons why the stock market is headed for a crash:
1: The curiously juxtaposed state of asset prices, with generally buoyant equities but falling sovereign bond yields and commodity prices. They cannot both be right. High equity prices are – or at least, should be – indicative of investor confidence and optimism. Low bond yields and falling commodity prices point to the very reverse; they are basically a sign of emerging deflationary pressures and a slowing economy. If demand was really about to roar away, both would be rising along with equities, not falling.
2: Europe, the problem economy that refuses to go away.
3: Political uncertainties.
4: An increasingly turbulent international situation, made worse in some of the world’s major flashpoints by declining oil prices, greatly enhances the chances of unanticipated shocks. Such risks are, of course, always with us, but are greater today than markets like to believe.
5: Most importantly, few of the underlying problems highlighted by the financial crisis have yet been convincingly addressed. If anything, they’ve got even worse.
Caution isn't just recommended for the stock market. It also applies to the overall economy, thanks to politics. A dark cloud is threatening the economic skies: fiscal and political uncertainty.
Absent congressional action, a host of business and personal tax breaks expires on January 1. The government's borrowing limit is reinstated on March 16, although the government might not actually hit the ceiling until August.
On March 28, unless lawmakers act, physician reimbursements from Medicare drop off a cliff. On May 31, the highway trust fund runs out of money. In June, the Export-Import Bank, which helps finance overseas purchases of American exports, might close in the face of conservative opposition to its mission. Then on Sept. 30, the entire Children's Health Insurance Program faces its expiration. A few days later, across-the-board spending cuts loom once again.
Investors should prepare for a return of governing-by-crisis in 2015, something that will not warm the financial markets.
12.2.14 - Ground Floor Opportunity in Gold and Silver
Gold last traded at $1,199 an ounce. Silver at $16.46 an ounce.
Yesterday saw gold and silver swing dramatically to the upside, prompting technical analysts to scramble to review their charts.
Silver staged a huge recovery on Monday. It climbed a whopping 18.7% from its intraday low. Silver dropped to a five-year low and then rebounded; this suggests a bottom now could be in place.
Gold’s intraday recovery was also dramatic with a positive swing of 6.9%. Gold also may have found a floor, given Monday’s move.
One technician called it "probably the most important technical price action in gold and silver that we’ve seen in months."
The metals got a lift from three factors: a Japanese downgrade that boosted haven demand, India easing its import restrictions for gold and a softening dollar.
This activity could represent a terrific buying opportunity in both metals.
The news is not so good with regard to the US Treasury's management of America's fiscal house.
In what can be accurately described as a Ponzi scheme, the Treasury recently issued $1 trillion in new debt, to pay off old debt, in just eight weeks.
The Treasury report on the matter is enough to make one tremble.
The largest share of the marketable debt - $8,192,466,000,000 - was in notes that mature in 2,3,5,7 or 10 years, and which have an average interest rate of 1.807 percent as of the end of October.
Another $1,412,388,000,000 of the marketable debt was in Treasury bills, which carry “maturities ranging from a few days to 52 weeks,” says the Treasury. These $1.4 trillion in short-term Treasury bills had an average interest rate of 0.056 percent as of the end of October, according to the Treasury.
The continual rolling over of these short-term, low-interest bills helped drive over the $1-trillion mark the new debt the Treasury had to issue in the first eight weeks of this fiscal year.
The Treasury has taken out what amounts to an adjustable-rate mortgage on our ever-growing national debt.
12.1.14 - Gold Market Shrugs Off Swiss Vote
Gold last traded at $1,218 an ounce. Silver at $16.69 an ounce.
Swiss voters went to the polls over the long weekend to vote on several issues, including whether to compel their central bank to add substantially to its gold holdings.
This issue was always overblown by gold market observers. Politics is an unpredictable activity and the amount of gold in question would not have significantly altered the physical gold market in the first place. Moreover, the issue was less about gold and more about who gets to be in charge of such decisions in Switzerland. Politicians and bureaucrats are customarily loath to relinquish control and power and as such launched a huge campaign to influence the election outcome among the voting public.
The referendum's failure was not a surprise. Polls showed this was a foregone conclusion.
The important thing to remember is, no matter what anyone else says, the issue at hand was not gold but political and bureaucratic power and authority. The election outcome changes nothing for gold--not the current market conditions, nor gold's role in the global economy and financial markets.
It's really no surprise, then, that gold rose in European trading overnight.
There are more significant economic news reports to focus on as we begin December.
Three economic statistics emerged this morning that suggest a continued economic slowdown.
The first came from "Black Friday" shopping statistics here in the US.
Even after doling out discounts on electronics and clothes, retailers struggled to entice shoppers to Black Friday sales events, putting pressure on the industry as it heads into the final weeks of the holiday season.
Spending tumbled an estimated 11 percent over the weekend from a year earlier. More than 6 million shoppers, who had been expected to hit stores, never showed up.
The financial news media is already hard at work trying to spin these disappointing numbers, attributing it merely to changing shopping habits, but such a sharp decline year over year cannot simply be attributed to such factors.
The second economic report came from China, where the key Chinese manufacturing gauge fell as factory shutdowns aggravated a pullback in the economy. Just last week, China surprised the world by cutting interest rates, so this report can't come as a total surprise. China's economy is slowing just like Europe and Japan.
At this point the US economy seems to be the healthiest, but only relatively so. One might say the US is the healthiest horse at the glue factory.
That's because US manufacturing is slowing down too.
The U.S. manufacturing sector slowed in November to its lowest rate of growth since January, while gauges of new orders and output also fell to their lowest levels since January, an industry report showed on Monday. Financial data firm Markit said its final U.S. Manufacturing Purchasing Managers Index fell to 54.8 from October's final reading of 55.9.
Finally, given all the disappointing economic news, it comes as no great surprise there is a new warning about the US stock market.
Jubilant equity investors have been piling into U.S. exchange traded funds (ETFs) in the last few months, triggering a number of cautionary signals for stocks, according to U.S.-based tracker firm TrimTabs.
Some observers see it as a bearish signal that markets might have become too exuberant and are due to pull back.
TrimTabs also highlighted that inflows into these ETFs over the month ending November 26 was $42.9 billion - near a level not seen since December 2007, shortly after the last bull market ended. This inflow figure is also five-times the year-to-date average.
11.26.14 - Gold Set for Major Turnaround
According to George Gero of RBC Capital Markets the gold market is set to rise in 2015.
Gero says "now you're going to see some changes based on all the stimulus in Europe, in China and in Japan."
In 2014, gold hasn't been helped by the dollar's rally. The greenback has shown serious strength against other currencies, which has reduced gold's attractiveness. After all, since gold is priced in dollars, an increase in the value of a dollar means a decrease in the value of an ounce of gold.
Our view is that the dollar rally is a mirage. The dollar isn't showing strength for any fundamental reasons. The dollar is only strong relative to other currencies, notably the euro and the Japanese yen, which are now declining as the European Central Bank and the Bank of Japan escalate loose, easy money policies.
A strong dollar over the long-term is a sucker's bet but the hedge fund industry, which has badly underperformed benchmarks for some time now, have pushed net bullish-dollar positions to a record $48 billion.
This might be the bubble of all bubbles.
What have we seen to justify such an optimistic view of the dollar?
Is the US economy hitting on all cylinders? Hardly.
In reality, the US national debt is still soaring toward $18 trillion and the federal government continues to rack up huge budget deficits every fiscal year.
Nothing has changed. Nonetheless, the lemmings are pushing the dollar as the latest flavor of the month.
Perhaps if the US economy was booming, there might be some justification for the sudden adoration of the dollar; but today we were treated yet again to two new disappointing economic reports that show the US economy is not on a solid foundation.
The number of people who applied for new unemployment benefits in the week before Thanksgiving jumped to an 11-week high and topped the 300,000 mark for the first time since early September. Initial jobless claims leaped by 21,000 to 313,000 in the week ended Nov. 22, the Labor Department said. Economists had forecast claims to total a seasonally adjusted 288,000.
Initial claims from two weeks ago, meanwhile, were revised up to 292,000 from 291,000.
Predictably, Wall Street is already spinning these figures as a mere aberration but some 18 million Americans who want a full-time job say they cannot find one. Moreover, millions of Americans have also dropped out of the labor force entirely, and it’s not just baby boomers hitting retirement age.
To go with the disappointing employment report was a disappointing report from the housing market.
Contracts to purchase previously owned homes unexpectedly dropped in October as tighter credit and weak wage gains held back would-be buyers. The pending home sales index declined 1.1% the National Association of Realtors reported today. Economists had expected the index to rise 0.5%.
11.25.14 - What Will 2015 Bring for the Stock Market?
Predicting the direction of the stock market can be difficult, especially when a market goes as long as this one has without a major correction.
Nevertheless, investors need to stay informed.
There are some new reports out this week about the stock market worth reviewing.
The U.S. market is breaking records, with the S&P 500 and the Dow Jones industrial average both at all-time highs. However, the road to even higher returns will be rocky, according to Dan Morris, global investment strategist for TIAA-CREF, which holds $840 billion in assets under management.
He sees vulnerabilities ahead, as the U.S. transitions out of QE and into a market where rates are higher. “That’s going to be a bumpy transition,” he said. " We’re more likely than not to get another bout of volatility like we had recently as the market starts focusing again on rising interest rates in the U.S.”
Morris isn't alone in predicting rough times ahead.
Other traders and analysts don't expect to be blown away by the stock market performance in 2015.
Wall Street stock pickers tend to be a very bullish bunch, but caution is the word heading into the New Year.
Goldman Sachs predicts the popular S&P 500 benchmark of U.S. stocks will end next year at just 2,100. That's less than 2% above where the index is right now.
Deutsche Bank believes the S&P 500 could climb to 2,150 by the end of the year, good for a 4% advance.
The stock market has been on a massive winning streak, rising nearly 200% since it bottomed out in March of 2009, but many are wondering how much longer that winning streak can continue.
Perhaps concerns about the stock market are one reason why consumer confidence in the US declined from October to November.
In fact, consumers are feeling the worst about the economy since June.
The Conference Board's Consumer Confidence Index declined in November, the group said today, despite expectations that lower oil prices would lead to a strong number.
November's 88.7 figure marked a decrease from a revised 94.1 in October. According to Reuters, economists had expected a reading of 96.0 for November. It was the lowest reading since June, when it registered 86.4.
11.24.14 - Will China's Monetary Policy Boost Gold?
Not long ago, many were prepared to write gold's obituary.
We've seen this many times before of course, but in early November strength in the US dollar was supposed to mean all but the end for gold.
Now gold has risen for three straight weeks.
It turns out the US dollar is not the only factor impacting the price of gold after all.
More and more, China is playing a large role in the gold market.
Physical demand for gold in China has been robust recently and it now appears China's monetary policy is becoming accommodative in a manner not unlike other central banks.
China has now joined the Bank of Japan and the European Central Bank in cutting interest rates. This has prompted a new outlook for gold among many traders with hedge funds in particular becoming suddenly bullish.
Of course, the Bank of Japan and the European Central Bank have gone beyond just cutting interest rates in an effort to boost their economies through monetary policy.
But one European is warning that monetary policy is not sufficient to boost Europe's stagnating economy.
Jens Weidmann, a member of the European Central Bank's rate-setting council has said monetary policy cannot boost long-term growth and called for reforms by governments to make the weak economy more investment-friendly.
Weidmann said in the text of a speech in Madrid today that low interest rates and stimulus measures can boost short-term demand but that central bank action "cannot permanently boost growth prospects."
Weidmann, who also heads Germany's Bundesbank central bank, said that long-term growth depended on countries' willingness to lower barriers to investment by streamlining bureaucracy and rules on hiring and firing.
Meanwhile, business confidence is on the wane around the world, suggesting that government efforts to boost the economy are running behind.
According to a survey of business executives released yesterday by Markit, U.S. and global business confidence slumped in the third quarter.
Markit said its U.S. business outlook survey showed that a net 31.2% of executives saw growing activity for the next 12 months in October, down from a net 51.4% when they were surveyed in June.
That’s the lowest reading since the survey started in 2009.
A global survey conducted by Markit saw a net 28% expecting higher activity, down from 39% in June, to mark a five-year low.
Finally, Iran's nuclear program is back in the news. Israel, concerned that the US administration may ink a bad deal with the Ayatollahs thus leaving the Jewish state vulnerable, is said to once again be considering military action against Iran's nuclear program.
No matter what your view of this issue, there can be no denying that the potential for conflict could have enormous implications for the financial markets and global economy.
11.21.14 - Chinese Central Bank's Surprise Rate Cut
Today, in an unexpected move, the Chinese central bank cut interest rates for the first time in two years. The bank announced it was cutting its benchmark lending and deposit rates, effective on the 22nd.
With this move, China joined other world central banks in a race to cut interest rates, attempt to stimulate their national economies and, in the process, undermine the value of their currencies.
First the US Federal Reserve minutes showed the Fed is in no hurry to raise interest rates any time soon, leaving them near zero. Then Japan announced a stimulus package that goes even beyond what Quantitative Easing involved. The ECB has announced its own bond buying program as well. Now China, whose economy has been slowing as of late, has joined the party.
The surprise move by China helped buoy gold, which is now heading for its third-straight weekly gain.
Also contributing to gold's rise has been rising physical demand, particularly in China.
Despite the 3-week rally, gold still represents one of the most attractive bargains in the investment world, as stock markets continue to be overvalued.
Ahead of China's announcement, the president of the European Central Bank Mario Draghi, made a speech at a European banking conference in Frankfurt. He said that the euro zone economy is likely to remain stagnant in the short-to-medium term. He added that the central bank stands ready to act fast to combat low inflation and that the inflation situation in the euro area has become increasingly challenging.
11.20.14 - Interest Rates to Remain Low?
Yesterday saw the release of the minutes from the Federal Reserve Open Market Committee's meeting in late October and the reports indicate the members of the committee saw little reason to shift course. In other words, the Fed is not ready to start raising interest rates.
In fact, Fed officials are increasingly worried about signs that inflation is rising too slowly.
The minutes also showed that members of the committee are complacent about signs of economic weakness in Europe and Asia, as well as recent market volatility.
If the minutes are to be believed, the Fed plans to hold short-term interest rates near zero for a “considerable time.”
As if on cue, two economic reports in the US were released today and both came in shy of estimates.
The number of Americans filing new claims for unemployment benefits fell less than expected last week. Moreover, the prior week's data was revised to show 3,000 more applications received than previously reported.
The four-week moving average of claims - considered a better measure of labor market trends as it irons out week-to-week volatility - increased 1,750 to 287,500.
Wall Street and the Obama administration are spinning these numbers, but the economy continues to disappoint no matter how one looks at it.
This was further confirmed by the U.S. Manufacturing Purchasing Managers Index report, an industry report from financial data firm Markit. It showed the U.S. manufacturing sector slowed in November, falling to its lowest rate of growth since January while a gauge of new orders also fell for a third straight month.
The Immigration Angle
With President Obama poised to take executive action on immigration, there is an economic aspect now being discussed.
President Barack Obama’s unilateral amnesty will quickly add as many foreign workers to the nation’s legal labor force as the total number of new jobs created by his economy since 2009. The plan will distribute five million work permits to illegal immigrants and also create a new inflow of foreign college graduates for prestigious, salaried jobs.
Obama has already provided or promised almost five million extra work permits to foreigners, while his economy has only added six million jobs since 2009.
The five million work permits will add to Obama’s prior giveaways, which have provided work permits to almost one million foreigners.
This suggests that federal employment figures are being skewed by these numbers and the amnesty program will likely intensify this phenomenon.
Finally, gold bulls are coming out of the woodwork as prices for the yellow metal rebound off four-and-a-half-year lows.
Market pundit Peter Boockvar, chief market analyst at The Lindsey Group, an economic advisory firm, is the latest to call a bottom for gold:
"Bottom line, gold is money and is not just a contra dollar play, it is a contra fiat currency asset in a world where fiat currencies are being created to an extent the world has never seen.”
11.19.14 - More Fed Watching
Traders on Wall Street, economists and mainstream investors are all awaiting the release of the Federal Reserve minutes later today.
The dollar strengthened overnight on speculation those minutes could reveal that the Federal Reserve Open Market Committee sees the US economy as stronger relative to other world economies.
As usual, traders will be looking for clues on when the Fed will raise rates.
The Fed minutes from its October 28-29 policy meeting are due at 2 p.m. Eastern Time.
One possible concern regarding US interest rate policy is the prospect that, similar to what occurred from 2004-2006 under Fed Chairman Alan Greenspan, the Janet Yellen Fed's ability to tighten long-term interest rates may be limited. The bond market is signaling that the past may be prologue as Yellen’s Fed prepares to raise rates next year. The yield on the 10-year U.S. Treasury note has fallen 0.71 percentage points in 2014 even as the Fed wound down its bond-buying program and mapped out a strategy to raise the benchmark federal funds rate from near zero, where it has been since 2008.
Greenspan's inability to overcome market forces to raise long-term rates back in 2004-2006, which he called a “conundrum”, contributed to the worst financial crisis in 80 years in 2007-2008.
In other news, the gold market is also watching for the release today of an opinion poll ahead of next week's Swiss gold referendum. Speculation has been building over Switzerland's gold holdings ahead of the November 30 vote on a proposal that would require the Swiss National Bank to hold at least 20 percent of its assets in gold.
Russia and the conflict with Ukraine is once again the focus of news reports as well.
Russia's central bank has been accumulating gold on a massive scale in an effort to protect itself from European Union and U.S. sanctions. The Russian economy is in real trouble with a serious surge in inflation combined with stagnant wages, pushing the country into a stagflationary quagmire. Much of Russia's national income has come from oil and gas revenue and the prices of oil and natural gas have been falling precipitously.
Meanwhile, one of the factors that has Russia in this fix, the conflict in Ukraine, shows no signs of letting up. The president of Ukraine, Petro Poroshenko, has declared his country is ready for "total war" with neighboring Russia as tensions between the two nations show no signs of ending.
11.18.14 - Gold Rebounds
For the past few weeks gold has been under pressure from a stronger US dollar. That appears to be coming to an end, at least temporarily.
We have maintained all along that the US dollar cannot sustain strength for long given the US fiscal situation and Fed monetary policy.
Now, gold has rebounded to a two and a half week high as the dollar has retreated.
In fact, gold has rebounded 6.4 percent from a 4-1/2-year low of $1,131.85 on November 7.
Much of Wall Street and the Obama administration have been touting a strengthening economy in recent weeks and months. But Bank of America seems to have broken ranks with its latest forecast and there are other anecdotes that indicate the US economy isn't as healthy as some would have us believe.
There may not be a recession next year, but don't expect a year of stellar growth either, according to the latest Bank of America Merrill Lynch survey of fund managers.
Fewer than one in ten fund managers expect a recession next year, according to the poll, but almost 80 percent forecast "below trend" growth according to a new survey.
There are two phenomena that point to long-term weakness in the US economy.
First, while much has been written about millennial children boomeranging back to live with their parents, there’s another group of people who have been quietly doubling up: baby boomers and their own aging parents. And some expect this particular trend to hold as people live longer and require more expensive care at the end of their lives.
A recent survey by the American Institute of Architects found that dedicated guest rooms, including in-law suites (that can be as simple as a secondary master bedroom suite with a bathroom), have been gaining in popularity over the past couple of years. As many households become caretakers for aging relatives, separate living suites have become popular options for accommodations.
Of course not everyone has the money to make big changes to a home. Many can’t add on another suite.
Second, the news is not good on the other end of the age spectrum.
The number of homeless children in the U.S. has surged in recent years to an all-time high, amounting to one child in every 30, according to a report issued by the National Center on Family Homelessness. Nearly 2.5 million American children were homeless at some point in 2013. Child homelessness increased by 8 percent nationally from 2012 to 2013, according to the report.
11.17.14 - Global Economy in the Spotlight
As we start another new week, the news is dominated by warnings about the global economy and financial markets.
The first warning came from the Prime Minister of the United Kingdom, David Cameron.
According to Cameron, the global economy is again showing worrying signs of an imminent financial crisis and he is warning of a dangerous backdrop of instability and uncertainty.
Writing in the U.K.'s Guardian newspaper, he said that this weekend's G-20 summit in Brisbane had further underlined the problems facing the global economy.
"Six years on from the financial crash that brought the world to its knees, red warning lights are once again flashing on the dashboard of the global economy," he said in the article published late Sunday.
Global trade talks have stalled, the euro zone is teetering on the brink of recession and emerging markets are now slowing down, he said. The spread of Ebola, the conflict in the Middle East and Russia's illegal actions in Ukraine are all adding to the global insecurity, according to Cameron.
The crisis may have already started in Japan, where the economy has in fact entered recession. This shock to the global economic system comes as euro zone economies stagnate.
The world’s third-largest economy contracted at a 1.6 percent annual pace in the July-September quarter, the government said Monday, confounding expectations it would rebound after a big drop the quarter before. Economists had forecast that the Japanese economy would actually grow by a healthy 2.2 percent in the quarter.
The big worry is that the slowdown in Japan could have a domino effect in other economies. Even China is showing signs of a slowdown.
Geopolitical tensions are not helping matters.
The war in Syria and Iraq is just one of the wild cards. Amid fresh clashes in Ukraine, tensions between Russia and the West are rising again. European officials were meeting this week to consider adding more Russian individuals to their list of sanctions. EU leaders could agree on new sanctions aimed at Russia's economy next month.
It's no wonder economists have trimmed their forecasts for U.S. economic growth in the fourth quarter with the rest of the world slowing down. Analysts see the economy growing at an annual rate of 2.7 percent in the current quarter, according to the Philadelphia Federal Reserve's quarterly survey of 42 forecasters, released on Monday. In last quarter's survey, growth for this quarter was forecast at 3.1 percent.
11.14.14 - Eurozone GDP Report Released, Poll Shows Pessimism and Al Qaeda and ISIS Reach Accord
Eurozone gross domestic product (GDP) grew by 0.2 percent in the third quarter according to data from Eurostat, the European Union's statistics service.
While this figure beat the consensus forecast from economists of 0.1%; it is still an anemic number. The only reason anyone is happy with this figure is because many traders feared the report might actually show that Europe had entered a recession already.
Italy remained in recession in the third quarter with its economy shrinking by 0.1 percent, after unexpectedly slipping back into recession in the second quarter.
Nancy Curtin, chief investment officer of Close Brothers Asset Management, said the figures were "nothing to write home about" and warned of a "heavily clouded" outlook for the region.
The European Central Bank (ECB) has already launched a host of stimulus measures to reverse disinflation, including cutting interest rates to record lows and announcing plans to purchase covered bonds and asset-backed securities (ABS) - and now a number of experts are calling for the bank to do more.
Full-blown quantitative easing in the shape of buying government bonds remains a very real possibility.
Given these anemic growth figures from Europe, it's little wonder that the world economy is in its worst shape in two years; with the euro area and emerging markets deteriorating and the danger of deflation rising, according to a Bloomberg Global Poll of international investors.
A plurality of 38 percent of those surveyed this week described the global economy as worsening, more than double the number who said that in the last poll in July and the most since September 2012, when Europe was mired in a recession.
Europe isn’t the only source of concern in the global economy, according to the quarterly poll of 510 investors, traders and analysts who are Bloomberg subscribers. More than half of those contacted said conditions in the BRIC economies - Brazil, Russia, India and China - are getting worse.
One professional observer who has consistently expressed worries over the global economy is reminding investors of trouble ahead.
Dr. Marc Faber warned CNBC viewers late Thursday that stocks could fall all the way down to his early bearish targets.
"Two years ago, I was of the view that it would be healthy for the market to have a 20 percent correction, and that's what I've expected. And many stocks have actually had 20 percent corrections over the last two years. But a limited number of stocks have driven up the indices. And of course, let me remind you ... in three years, we've almost doubled. If you really believe that every three years the market will double, then go and buy shares. I don't believe that," warned Faber.
One darling of the bull market in stocks has been Twitter, the social media giant that has thus far failed to produce a profitable business model. Standard & Poor's assigned a junk rating to Twitter's debt yesterday. S&P's unsolicited rating of "BB-" is three notches below investment grade. The company sold $1.8 billion worth of convertible notes in September.
Finally, in geopolitical news, Jihadist terrorist leaders from the Islamic State group and Al Qaeda have agreed on a plan to stop fighting each other and work together against their enemies. Such an accord presents new difficulties and could result in an escalating threat to the West, both through economic interests around the world and a threat to Western nations directly, which in turn could potentially have economic side effects.
11.12.14 - Focus on Europe
With no significant economic reports due out in the US this week, much of the news is understandably focused on various events in Europe, particularly Russia.
Nato officials report that Russian military equipment and Russian combat troops entered Ukraine this week.
"Russian tanks, Russian artillery, Russian air defense systems and Russian combat troops" were sighted, US General Philip Breedlove said.
The United Nations Security Council is convening an emergency session today to discuss the reported sightings. Given that Russia has veto power on the Security Council, it is virtually certain nothing will come of this.
If something does come of it, it is likely to be more sanctions from the European Union; something that would impact the already fragile EU and Russian economies.
Russian military activity in the Ukraine isn't the only military activity of concern to the Europeans.
Russia’s military is engaging in “dangerous brinkmanship,” according to a new report documenting dozens of recent incidents in which Russian warplanes and ships have taken aggressive or provocative actions, often in locations far away from the fighting in Ukraine.
A report by the European Leadership Network, a London-based group including former European political and military leaders, says the actions, taken together, present a “highly disturbing picture.” According to the report, the incidents include “violations of national airspace, emergency scrambles, narrowly avoided mid-air collisions, close encounters at sea, simulated attack runs and other dangerous actions happening on a regular basis over a very wide geographical area.”
The result, according to the European Leadership Network report, is a “volatile stand-off” between Russia and NATO. With both sides possessing nuclear weapons, the situation “is risky at best. It could prove catastrophic at worst,” the report says. It calls on Russia to “urgently re-evaluate the costs and risks of continuing its more assertive military posture,” and says both sides should “improve military-to-military communication and transparency.”
Worries over Russia are not the only thing on the minds of investment analysts when it comes to Europe.
The European funds industry experienced its second significant slowdown in fund sales in consecutive months according to the latest industry data from Lipper.
Lipper said the reversal in long-term fund flows was mainly driven by withdrawals from equity funds and high yield bond funds.
This is an indication that investors are increasingly worried about the future of the European economy and financial markets and are becoming more risk averse.
Finally, in both Europe and the US, banks were hit with with billions in fines and vigorous rebukes today for failing to stop traders from repeatedly rigging the currency markets for half a decade at the expense of customers and the wider financial system.
Royal Bank of Scotland (RBS), HSBC, JPMorgan, UBS, Citibank and Bank of America Merrill Lynch were each fined hundreds of millions of dollars following lengthy investigations.
11.11.14 - Veterans Day
**Swiss America would like to thank the gallant men and women who risked everything - and in some cases gave their lives - for our liberty and freedom. We appreciate your service and are grateful for your sacrifice.**
Today may be a normal trading day in the financial markets, but this day is often characterized by lower than normal trading volumes in US markets as we commemorate Veterans Day.
As we get closer and closer to the full implementation of Obamacare and the aspects of the socialized health care program are phased in, we will increasingly see Obamacare dominate the news--and especially the economic and financial news.
That's because Obamacare is going to have an escalating role in US fiscal policy, as well as in the expenditures of American households going forward.
So far, the news on Obamacare is far from pleasing.
Obamacare architect Jonathan Gruber, an MIT professor, said in a videotaped speech at the University of Pennsylvania that lack of transparency was a major part of getting Obamacare passed, and that it was written in such a way as to take advantage of "the stupidity of the American voter."
In other words, Obamacare was purposefully designed to obfuscate how it was financed, how the subsidies worked and the other unpleasant features of the law.
More than four years after Obama signed Obamacare into law, it has become increasingly clear that Gruber wasn't exaggerating. The law's vast web of accounting gimmicks, cross subsidies, taxes and fees makes it increasingly difficult to know what Obamacare costs are for consumers, businesses and taxpayers.
Not surprisingly, many Americans are feeling as if they were cheated and the already-waning support for Obamacare will likely suffer from this revelation.
But more importantly, the eventual fiscal costs of Obamacare and its impact on consumers are simply not knowable due to the underhanded and dishonest way in which Gruber purposely structured it. This will inevitably lead to economic uncertainty, which will in turn impact the financial markets at some point.
Russia's Grand Plan
Sanctions imposed on Russia this year have had an impact on official demand for gold from Russia's central bank for a variety of reasons. First, Russia has sought to de-emphasize the US dollar as a reserve asset and replace it with gold and other assets. Another reason is that Russia is a gold mining and exporting nation and sanctions have made it difficult for Russian mining firms to export gold mined inside Russia via Russian commercial banks. The Russian central bank has stepped in to buy up the additional gold.
The main reason for the sanctions on Russia has been its involvement in the conflict in Ukraine. Sources out of Germany are now warning of a possible new escalation in the violence there.
“Everything suggests that the parties are making renewed preparations for violent conflict,” German Foreign Minister Frank-Walter Steinmeier told reporters at a foreign-policy conference in Berlin.
Ukraine said separatists in its rebel eastern regions have announced a full mobilization. As a result, the European Union has threatened further sanctions against Russia, something that won't help anyone's economy.
Hedge Funds Teetering
We are still seeing the fallout from October's stock market volatility. The industry that seems to have taken the brunt of this is the hedge fund industry.
Last month's sharp rise in volatility did not work in hedge funds' favor, as the industry posted its sixth month of negative returns for the year. Far from producing what they promise - namely market-beating investment performance - hedge funds seem to have lost investors' hard-earned wealth at an alarming rate.
Income Inequality Still Widening
Finally, an issue that both Fed Chair Janet Yellen and President Obama repeatedly address; income inequality in the US. Yellen has claimed it is a threat to the US economy and financial markets. Yellen has even emphasized this issue in public statements when observers have been seeking her views on economic and monetary policy. Critics have called Yellen hypocritical, pointing out that Fed policies have actually contributed to income inequality by producing a bubble in the financial markets while the overall economy has been lackluster.
Now, according to a new research paper published by the University of California at Berkeley, US inequality in wealth is approaching record levels.
This could be dangerous for our economic and financial future. The authors examine the share of total wealth held by the bottom 90% of families relative to those at the very top. In the late 1920s the bottom 90% held just 16% of America’s wealth—considerably less than that held by the top 0.1%, which controlled a quarter of total wealth just before the crash of 1929.
Today, the top 0.1% (consisting of 160,000 families worth $73 million on average) hold 22% of America’s wealth, just shy of the 1929 peak—and almost the same share as the bottom 90% of the population.
11.10.14 - Voices from the Past
Gold prices end slightly lower on higher stocks and a stronger U.S. dollar. U.S. stocks end higher as investors focus on record level benchmarks and volatile commodity prices. Gold last traded at $1,159 an ounce. Silver at $15.67 an ounce.
Two famous voices from the past have some interesting things to say as we embark upon another trading week.
Those two voices belong to former Fed Chairman Alan Greenspan and former Soviet leader Mikhail Gorbachev.
We've reported recently about Greenspan's comments about Fed monetary policy and the end of Quantitative Easing. But now we find out that in the course of those comments - in which he recommended individual investors buy gold - he had much more to say on the topic.
For some reason, these comments (below) were not purposely removed from the transcripts sent to media outlets:
Gold is a currency. It is still, by all evidence, a premier currency. No fiat currency, including the dollar, can match it.
Gold has always been and likely will continue to be the ultimate form of real money.
In addition to Greenspan, another voice from the past has surfaced: that of former Soviet leader Mikhail Gorbachev.
Over the weekend Gorbachev said that tensions between the major powers have pushed the world closer to a new Cold War.
"The world is on the brink of a new Cold War. Some are even saying that it's already begun," Gorbachev said at an event marking the 25th anniversary of the fall of the Berlin Wall.
Tensions between Russia and the West are having an impact on the world economy as the Russian ruble comes under pressure.
Dozens of international companies depend on Russia for a significant portion of their sales and, with the ruble down over 20% in the last 3 months alone, those companies are suffering because the Russian economy is suffering.
Increasingly, Russia has turned to China for relief. Russia and China have inked trade deals and targeted the US dollar.
At this week's major Asia-Pacific Economic Cooperation summit in China, China and Russia deepened their energy ties with a second blockbuster deal that lessens Russian reliance on Europe and would secure almost a fifth of the gas supplies China needs by the end of the decade.
For their part, the Chinese see President Obama as a weak leader on his way out, which probably means China will continue to spend the next two years working to overtake America's economic supremacy and the supremacy of the US dollar.
Finally, there is yet another credible forecast that economic trouble lies ahead.
The Jerome Levy Forecasting Center is saying there is a 65 percent probability of a worldwide recession forcing a contraction in the U.S. by the end of next year. This is especially worrisome because this same firm correctly predicted both the Great Depression and the financial crisis of 2007-2008.
11.7.14 - Gold Rebounds, Russia Rattles Europe
Gold prices end higher on downbeat U.S. jobs data. U.S. stocks end with third straight week of gains. Gold last traded at $1,169 an ounce. Silver at $15.71 an ounce.
The price of gold is on the rebound today after U.S. payroll data missed forecasts and depressed the dollar. US Labor Department data showed the US added 214,000 jobs in October. Forecasters had predicted the economy would add 231,000 in October.
Gold has been under pressure for a week from a rising dollar. The dollar surrendered some of those gains after the data from the Labor Department showed job creation was weaker than expected.
Gold may also have been buoyed by reports that a Russian mechanized column, consisting of 32 tanks and 16 self-propelled howitzers, had crossed over into Ukraine. The cross-border incursion, if confirmed, is a significant escalation of the conflict between Russia and Ukraine. A NATO military officer was quoted as saying the alliance had seen an increase in Russian troops and equipment along the border. Stock markets in Germany and France fell sharply in response.
These developments illustrate why gold has been called the "crisis commodity" for decades. During times of tension, paper assets tend to depreciate while gold is unique in its ability to provide security and stability.
11.6.14 - Bullish Factor Emerges in Gold Market
Gold prices end slightly lower ahead of the much anticipated October employment report. U.S. stocks close at record levels after ECB hints at more aggressive stimulus measures. Gold last traded at $1,142 an ounce. Silver at $15.41 an ounce.
We have maintained all along that the price of gold at a 4-year low, combined with stocks unjustifiably at or near an all-time high, makes for one of the most attractive opportunities in gold in the 21st century.
Now a bullish factor has emerged in the gold market that reinforces this terrific opportunity to take advantage of multi-year lows in gold.
It seems a major physical shortage of both gold and silver has developed.
Silver American Eagle sales have soared to their highest level in two years and now the US Mint says it has sold out of all silver American Eagles due to the tremendous demand. They also report that they do not know exactly when they will be able to start sales back up again.
Meanwhile, statistical figures indicate there is also a physical shortage of gold. In fact, the physical shortage in gold is the most acute it has been since 2001.
Clearly something is happening in the precious metals markets which seem to be like a coiled spring ready to be released. When will the spring be released? It's impossible to know precisely. History tells us that some exogenous event will be the catalyst.
One possible catalyst of course would be a serious setback in the gravity-defying stock market.
Paul Craig Roberts of the Institute for Political Economy seems to be saying that gravity could catch up with the stock market, declaring that the "American financial markets have no relationship to reality. The divergence of markets from economic reality disturbs neither public policymakers nor economists, who promote the interests of the government and its allied interest groups. The result is an economy that is a house of cards."
Ultimately, the financial markets can only be sustained by healthy underlying economic conditions.
Two new reports call into question the health of the US economy.
The pace of growth in the U.S. services sector slowed more than previously estimated in October from a month earlier, hitting its lowest level in six months and pointing to a year-end slowdown in economic growth.
The final services sector Purchasing Managers Index compiled by information services company Markit slipped to 57.1 in October from 58.9 in September, hitting its lowest rate since April. Markit had initially estimated the index at 57.3 in its preliminary, or "flash," reading released in late October.
Taken together with Markit's manufacturing activity survey for October, which fell to a three-month low, the data suggests the brisk U.S. economic growth rate of the previous two quarters will not be sustained in the fourth quarter.
Additionally, US companies laid off over 51,000 people in October, the most since May. This is a 68% surge month over month (and a 11.9% rise year over year) - the biggest monthly rise since September 2011. Retail, Computer, and Pharma industries saw the biggest layoffs. Hiring also collapsed from the record 567,705 in September to just 147,935 in October. This was the worst October for layoffs since 2009.
Finally, Russia's assault on the US dollar continues apace. Russia may ban the circulation of the US dollar. The State Duma has been submitted a bill banning and terminating the circulation of the US dollar in Russia.
If the bill is approved, Russian citizens will have to close their dollar accounts in Russian banks within a year and exchange their dollars in cash to Russian ruble or other countries’ currencies.
Otherwise their accounts will be frozen and cash dollars will be confiscated.
After the law enters into force, it will be impossible to obtain cash dollars in Russia.
11.5.14 - And Now, Back to Reality
Gold prices end sharply lower as the U.S. dollar soars. U.S. stocks end mostly higher on a rebound in oil prices. Gold last traded at $1,145 an ounce. Silver at $15.44 an ounce.
The mid-term Congressional and state-level elections are now, for the most part, behind us and it appears the political landscape in America has changed overnight.
Today the markets are digesting the gains made by the GOP.
We would caution investors not to focus too much on the game of charades so often played out in our nation's capital.
Historically, political developments have had less impact on the investment world and financial markets than economic developments and fiscal and monetary policy. The key going forward will be the future of those factors.
And the news marches on.
Gold has fallen below $1,150 per ounce today - its lowest price since mid-2010.
Gold at a 4-year low and stocks at, or near, an all-time high stand out as one of the most obvious value trades of all time, especially with the slowdown in the European and Chinese economies and Japan's recent moves to artificially stimulate its economy by debasing the yen.
As if to warn America that the results of the election will soon be forgotten, we received a rather unpleasant warning from IRS commissioner John Koskinen that the 2015 tax filing season will be a miserable one.
Meanwhile, New York Post and Washington Times columnist Charles Hurt, warns that " America now enters the two most dangerous years of her existence — or certainly the most dangerous since the Great Depression and possibly going all the way back to the Civil War."
This is not the time to be complacent. Now is the time to be more vigilant than ever. This goes double for your financial future.
11.4.14 - Election Day
Gold prices end lower on a stronger U.S. dollar. U.S. stocks end lower on global growth and oil concerns. Gold last traded at $1,167 an ounce. Silver at $15.95 an ounce.
Today is election day in America, and even though the financial markets are understandably focused on non-political issues in the news today, the election also has implications for the investment world.
There are many economic issues voters have their attention focused on as they go to the polls today, but none more prominent than Obamacare. President Obama's unpopularity has Republican candidates using Obamacare as a weapon against Democrat candidates, while Democrats are seen as fleeing from any issue closely associated with Obama.
One potential outcome of the election could be closer scrutiny of the Federal Reserve.
A Republican takeover of the U.S. Senate on Election Day would promise increased political turbulence for the Federal Reserve.
Financial executives say a GOP-led Senate would ratchet up congressional scrutiny of the central bank's interest rate policies as well as its regulatory duties as overseer of the nation's largest financial firms. Republicans haven't controlled the Senate since before the 2008 financial crisis and recession, which put a spotlight on the Fed and its powers.
"If the Republicans take control of the Senate and thus have control of both the House and the Senate--two words for the Federal Reserve: Watch out," said Camden Fine, president of the Independent Community Bankers of America.
But no matter the outcome of the election, the markets will ultimately be driven by non-political factors, such as economic growth.
Here in the US, more evidence is trickling in that the real estate market is slowing. The U.S. housing market cooled off in September, as home prices rose at an ever-slowing pace.
Globally, Europe's economic growth is foundering.
The European Commission today cut its growth forecasts for the eurozone and the European Union, citing the tensions in Ukraine and the Middle East along with a lack of investment.
The forecasts for the eurozone were dragged down by lower than-expected growth in big countries including Germany, France and Italy; the latter of which is expected to fall back into recession this year.
The biggest economies on the continent are slowing. This does not bode well for the rest of Europe. Considering Europe is one of the world's major economic and financial regions, the global economy is in trouble as well.
11.3.14 - Complacency Returns
Gold prices end lower on a stronger U.S. dollar. U.S. stocks end choppy session lower on a batch of mixed economic reports. Gold last traded at $1,166 an ounce. Silver at $15.87 an ounce.
As the first trading day of November 2014 kicks into high gear, complacency has clearly returned to Wall Street; though that complacency is flying directly in the face of some stark warnings from some extremely well-respected investment professionals.
Before we get to the situation on Wall Street, we should address the recent decline in gold to below $1200 per ounce. This is mainly the result of strength in the US dollar. Because of that, the current weakness simply has to be regarded as temporary.
There is no long-term scenario that even tries to make a case for dollar strength over the long-term.
America's fiscal and monetary situation virtually dictate dollar weakness over the long-term. The US national debt is now just over $17.9 trillion. Each day, we add $2.4 billion to the debt. This means that before 2015 makes its debut, it is likely our national debt will eclipse the $18 trillion mark. With a population of 319 million people, each citizen's share of the debt is $56,000.
Meanwhile, the federal government's annual budget deficit is still in the half a trillion dollar range, meaning we are still spending far more than we take in, so the debt will continue to grow.
This has created a Catch 22 situation. Low interest rates in the US have kept the debt artificially low. But recent rises--and rumors of rises--in interest rates are pushing the dollar higher. The problem for policymakers in Washington is that higher interest rates translate into higher interest on the debt; a potentially crippling component of our federal expenditures.
In other words, America cannot afford a stronger dollar.
The US Treasury will eventually be forced to do service our debt with dollars cheapened through the printing press.
That's why taking advantage of gold prices at current levels is so important. Over the long-term, the current gold price is going to be remembered as an amazing bargain.
There is yet more evidence that the federal debt and deficits are setting America up for big trouble ahead.
The debt-to-tax ratio in the US is now at levels unseen since World War II, the greatest armed conflict in our nation's history. Our debt levels are higher and our tax burden is higher. This does not point to a healthy US economy down the road.
Make no mistake about it: without a healthy economy, the bull market in stocks is unsustainable. Despite the complacency we are seeing on Wall Street and in Silicon Valley right now, some professionals are issuing fresh warnings about both the US economy and the stock market.
While the recent selloff in stocks seems to be in the rearview mirror for many, there's a bigger one coming within the next three months, Empire Execution president Peter Costa warns:
"The market has been on a tear for over five years. We had a small pullback of 8 percent. I don't think that's enough. I think that the market needs to come back a little bit more than that for a longer duration," Costa says.
Hedge fund veteran and newsletter editor Michael Lewitt echoes these sentiments in his latest bulletin to subscribers of his The Credit Strategist letter: "Investors should hedge their investments in order to protect themselves from the potential risks that are building as stock markets reach ever higher levels of valuation. Investors may have gotten ahead of themselves with this latest rally. Investing in stocks is not supposed to be this easy."
Finally, bond market guru Bill Gross has a new warning about the economy in general, which does not bode well for stocks. He warned today that deflation remains a growing possibility. He went on to explain that deflation is the enemy of stability and growth.
The roughly $7 trillion pumped into the financial system since the financial crisis by the world's three biggest central banks has succeeded mostly in lifting asset prices rather than the cost of goods and workers' wages, he said.